As of 2013, the long-term unemployed’s—those unemployed for a year or more—stock in the Eurozone accounted for over 6% of the total labor force. This was more than double the pre-crisis level. Although the sovereign debt crisis might have triggered the increase in umeployment, there were also certain cyclical and structural factors that contributed to it.
The sovereign debt crisis contributed to the increase in unemployment (Part 4 ). In this part, we’ll discuss how the Eurozone’s cyclical dynamics have let unemployment increase to such high levels.
Cyclical unemployment is a product of business cycles. A business cycle refers to periods of expansion or recession. During expansions, the economy is growing. It has indicators like employment, industrial production, sales, and personal incomes. The indicators are on a rising trend. During recessions, the indicators decrease. Decreasing indicators show that the economy is contracting. As a result, when business cycles are at their peak and economic output is expanding, cyclical unemployment is low and vice versa. Economic output is measured by the gross domestic product (or GDP).
In Europe’s case, weak gross domestic product (or GDP) data across the 18-nation economy continues to reflect the Eurozone’s weakness. Economic weakness is also reflected in the performance of exchange-traded funds (or ETFs) like the Vanguard FTSE Europe ETF (VGK), the iShares MSCI EMU Index Fund (EZU), and the SPDR EURO STOXX 50 ETF (FEZ). These ETFs track European equities. VGK invests in companies like Novartis AG (NVS) and HSBC Holdings Plc (HSBC).
Even non-stressed countries are experiencing subdued wage growth. As a result, uncertainty about the recovery’s strength is weighing on business investment. It’s slowing the rate that workers are being rehired.